Friday, June 11, 2010


While Congress is known for being lazy, it cannot accomplish a simple task simply.

Congress wants to extend a laundry list of expiring tax breaks that it believes are appropriate for another year, rather then making them permanent and not having to waste time each and every year extending them. This in itself is stupid – but if that is what they want so be it.

However, Congress cannot just sit down and write a bill that extends these tax breaks for another year. They have to sneak in tons of pork, either to “buy” the votes of certain members or to pay back special interests for campaign contributions and various other “gifts”. And add additional items of legislation that may not be as popular as extending the tax breaks so as to secure their enactment. And then they have to include poorly thought out income generators to pay for the pork and less popular provisions.

While we are talking about the extenders bill let’s take a look at the popular 1040 items and see if they are really worth extending -

(1) The option to deduct state and local sales tax instead of state and local income tax.

I do not understand why it must be either or – if state and local taxes are deductible (including personal property and real estate) then all state and local taxes should be deductible.

That said, this option does provide an added tax benefit for those in states with no state income tax, as well as for many retired individuals who pay no state income tax because of their status.

(2) The “above-the-line” adjustment to income for qualified tuition and fees.

BO’s new American Opportunity Credit pretty much makes all other tax benefits for the cost of a bachelor’s degree obsolete. However it does not apply to graduate school expenses. This above-the-line deduction provides some tax benefit for graduate students.

If the Tax Code must be used to subsidize higher education (and I do not believe it should – the subsidies should be provided, but done in a more appropriate way) then this deduction should be continued.

(3) The ability to make a tax-free transfer of up to $100,000 directly from an IRA to a qualified charity.

I like this greatly underused tax benefit and support its continuance. Perhaps I should “tout” it more in a future TWTP post.

• The “above the line” adjustment to income for educator expenses.

This deduction for a minor portion of a specific profession’s employee business expenses makes no sense. Besides, it comes down to nothing more than simply handing, on average, $63.00 to K-12 teachers. Big deal!

While teachers do make an important contribution to society, why are they any more deserving of this small hand-out than police officers, firefighters, nurses, or members of any other similar public service profession?

If nothing else this is a testimony to the political power of the state teachers’ unions (like NJEA). Unfortunately these unions use their power mostly for selfish purposes and not to improve the actual education of America’s students.

• The additional $500 or $1,000 standard deduction for real estate taxes paid-.

This also makes absolutely no sense. Basically what it does is to provide an additional tax benefit to senior taxpayers, who have paid off their mortgage and do not have enough other deductions to itemize. Off hand I can only think of one client not age 65 or older that benefited from this on the 2009 return.

And why are real estate taxes more worthy of this treatment than charitable contributions or medical expenses?

FYI - I am currently relaxing in Beach Haven on LBI. There will be no BUZZ edition tomorrow (Saturday).

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